IVR - Earnings call transcript Q4 2019 | Invesco Mortgage Capital Inc.

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Operator

Welcome to Invesco Mortgage Capital, Inc's Fourth Quarter 2019 Investor Conference Call. [Operator Instructions] Now I would like to turn the call over to Brandon Burke in Investor Relations. Mr. Burke, you may begin the call.

Brandon Burke

Well, thank you, and welcome to the Invesco Mortgage Capital fourth quarter 2019 earnings call. I to you've prepared sharing conducting question-and-answer and we us remarks team a forward look with session. management are joined delighted and and The you our

I to made future statements this events They expectations forward-looking and conference involve related These forward-looking uncertainties CEO, statements made over statements, reminder are the in our call and and not may the there provide plans today guarantees. a turning will not and John assurance Before and performance. assumptions about Anzalone, our differ presentation wanted call which overall to no that management's our materially that include risks, results as and are be from of could expectations. actual reflect

non-GAAP the on our end recent statement. the discuss To link of found presentation at Invesco our any Reconciliations at For measures XXXX a discussion We our XX-K of Form invescomortgagecapital.com makes update during also today's these with Relations. see described annual no on most Presentation Investor risk financial risks and welcome QX the report for forward-looking subsequent Again, you joining the and today, us website Earnings presentation. the slide click view may be please and under filings earnings and to SEC. measures thank of these financial may you obligation access may in non-GAAP call. today. uncertainties,

Anzalone. John I'll to now turn call the John? over

John Anzalone

Head Credit; Credit. Norris, our this President CIO; to Residential and our IVR's Lee this Kevin welcome and earnings Commercial Brian COO Lyle, I'll our CFO Head joined morning, quarter our of Phegley, and and Dave call Good of call. be morning by fourth on Collins,

core portfolio quarter our funds. our increase $X.XX quarter per as the earnings common dividend the power benefited cost combination capital at the of of earnings are the economic has lower generated earnings well Once value for an raise in again, value core the by The from allowed The third the the announce increase steady X.X% We quarter full book stable, unchanged a as of of for as increased effective to quarter $X.XX our fourth to $X.XX from August ending share, XX% pleased for of $XX.XX. an share. return quarter. produced our relatively of by remained us dividend and to book per quarter raise,

full strong for an economic want results While for stellar to highlighting fourth improved moments year a to dividend XX% was XX.X%. we produced nearly I $X.XX our stockholders per few IVR's from we to the $X.XX value share spend $XX.XX, increased quarter, year. the IVR's of from achievements $XX.XX and delivering a XXXX for as X% return book

capital We assets. in and equity also accretive over year, increase the raised additional of during to invest $XXX scale us allowed which million

As always, success as as a active quite rate we are to management our active and our key with investment respect hedges portfolio, well to the was year. during interest our

of steadily of continue our is position, year-end. core minimize that refinancing same and earnings. collateral to our to to are prepayment the activity. we the RMBS be this hold increased at CMBS exposed we prepayments in we on time, constituted detrimental allocation a XX% At risk our side, backed in assets which to capital less that have as exposure sector Over Agency continue we have the strategies our to to On by equity investment increased allocating impact XX% assets our XXXX, reduced deliberate and Agency

class for thus fixed to CMBS financing of guaranteed prepayment hedging agency attractive is asset several has more spread efficient attractive protection portfolio. combination notable rate and hedge. CMBS and Agency efficient us favorable government by our which It allows and makes volatility levels, limits at are to and finance attributes. Agency them a they The complementary with

through residential Although credit stable and non-Agency less million subordinate sectors bonds additions Positively, active In well credit year. we credit the accretive modestly continue advantage to deleveraging of investments through we assets we during $XXX structural to we benefit during and from selective year. own the fundamentals increased assets are purchases of of our positioned $XXX and take were we CMBS the million sectors and commercial new when the are these residential of XXXX, attractive. in total, purchased

to rate of actively new capital. funds. hedge and managed year during portfolio to the improve rates environment duration deployment the able the our significant our reacted XXXX decline We're to our interest We throughout also swap as in advantage the dramatically of profile of volatile cost take effective

efforts minimize and borrowings in three Overall, LIBOR and shifts insulated to largely our month have LIBOR in basis the exposure interest on been our the to curve. successful constructing from improve Our between effective while utilizing value year swaps we earnings our to core of quite and hedges rate a interest rate in our a the book our improve or to is earnings value. protect portfolio Again, book reserve objective margin stable interest rates. stream, maintaining despite one volatile

we established positioned that XXXX. positive to in believe are the very we well forward, continue Looking momentum we

have assets has a XXXX assets. Book good year-end very common already since invested is be as Agency very to In start in had continue well million X.X% as stock earlier credit month, to and $XXX this raised which value bid. into CMBS IVR we fact, successfully up we accretive

overall, our the the best mortgage are the So very producing see we that among sector. feel continue coming positive REIT results quarters ability very to in reliably about a good for and outlook

With that, Brian. turn I'll over to it

Brian Norris

on on the equity call. basis. John, asset we start everyone and an X our detailed Slide where allocations sector Thanks, and good to morning on I'll

charts the asset across left, on in well pie classes. diversified we detailed the remain As

provide a book managed what a fixed stable and the continues income attractive and to actively in to hybrid earnings year Our volatile strategy core value be proved markets.

full quarter of raise in provide this the of a quarter strong equity new opportunity in an capitalize reflect on investments. our volatility, common XXXX earnings to The August and those core fourth

reduction unchanged to holdings Agency RMBS a in largely fund quarter remain our Agency in allocation purchases non-Agency asset CMBS. Our on and slight with the

Our rates to was for exposures low and front hedges hedging Agency RMBS fourth Agency modest and to our more extension primarily quarter our in interest lock-in in in activity rates. effectively on fair in offset longer CMBS the the as the extended the steapener of we

valuations strong proceeds as John, in As start this and year to had spread we've mentioned capitalize January. RMBS quickly to equity deploy were into reinforced by given ability a to our opportunities able widening February the in on common market Agency attractive following raise we

half to to refinancings. an increased speeds the as the RMBS quarter mitigated core Positively, sector reduced during which allocation Moving XXXX increase of our our X, to holdings prepayment to speeds the low of composition our on led on impact of in faster RMBS the rates in Slide earnings. second Prepayment details assets. overall Agency Agency mortgage

XX% RMBS this unchanged protection level the of for higher combined total and CPRs in was allocation in to TBA challenges RMBS largely quarter, produce and now beneficial as valuations, environment experienced remains the the performed yield lower rates of very continued Agency steeper pools, as market. XX% robust demand given attractive higher is assets curve the slower volatility, largely well contain quarter remains and some XX-year rates, than prepayment Our Despite the comprised value all protection the XX% of fourth of a sector. Agency market. which to specified during interest

steady that total allocation our see nearly left hand or X, to Slide remained $X can table the XX% you lower in at CMBS to assets. Agency Turning billion of

this end Asset and remained to during as more we'll were We spreads third the additional source. but accretive become sector attractive. quarter, tightening challenging spread on quarter positive stable the through to of made exposure look increase the investments valuations

protection these of to of the the able prepayment should net investments. holdings, been on interest the the that portfolio benefit lock $X billion life margin in an on attractive we've Given for nearly assets

our Slide credit. X mortgage company's allocation details commercial to

We continue tightening accretive benefit from were holdings from continued CMBS, of the few Our mid-teens add notable portfolio fundamentals. the for quarter during investments. low spread million ROEs to $XX in prepayment improved recently credit opportunities sector the able issued And as CMBS to this benefits to in to non-Agency similar with provided Agency protection.

property commercial the holdings. portfolio. on our of in left indicating than the ago, nature embedded quality leverage seasoning highlights rating holdings highlights particularly portfolio over the chart seasoned commercial credit strong reduces of as of Fundamentals the appreciation were agency years issuance originated our XX with the real mortgage from $XXX two-thirds CMBS the five more our given roughly performance the of holdings price our upgrades. remained right estate shows Slide our credit our on assets, while The benefiting supportive, in million of chart since

and ability during Moving credit on to the Credit as were XX, wage well remains mortgage left. our have to valuations We affordability. diversified chart to lower investments. drive This fundamentals million limiting the residential as portfolio. portfolio residential higher, on quarter. sector in here fundamentals growth add which supportive in covers able $XX indicated are rates add pie credit our accretive in Strong improved the the slide

on of XX around credit The our since agency our the home housing and right distribution CRT credit as some low residential recovery over market. from reflects underlying rates. on investments, XXXX investments upgrades portfolio. price benefit XX% Slide The vintage XX% the a prior are our in chart upgraded chart provides one the assets the issued significant of default the appreciation of strong quality our of rating and detail indicating to at were have the on of issuance, by least been the result shown left.

Lastly, with hedging. of counterparties year-end, Home Slide Bank. of At financing billion XX the through and and outstanding Federal XX had we billion summarizes financing our $X.XX repo $XX.X secured Loan

declined. $XXX reduction the of we assets lower The the risk billion quarter. was across our due of of The LIBOR to during largely changes We $XX improved our rate million a in swaps, interest as average as funding tightened have financing after year. largely repo can locked given the reduce deleveraging was repo cut average Fed in the notional FOMC associated attributed To quarter-over-quarter. markets held in to as in decline the interest LIBOR, modest was year-end decrease the shortly as amount decline active final and spreads the October, seen be with of in assets in notional cost, of longer well swaps. funds the funding -- which meeting volatility of management interest avoided funds Potential rate maturity we the cost rate funds repo in

our book from We and dividend the a performance benefit equity XXXX. was investors providing the the XX%, supported by and common excited our value support from core with XXXX are our an in for are on year of total remain well about positioned We we environment. among focused on and closing, and stable the attractive to the market best of the current economic industry. return believe earnings XX.X% In return opportunities in appreciate

the now remarks my and prepared Q&A. will That we ends open line for

Operator

first [Operator Instructions] our question Harter Doug you. with Suisse. And from Thank is Credit

open. is line Your

Doug Harter

Agency of compared to characteristics kind return relative of to the RMBS profiles you about Agency CMBS, talk the you ROE different leverage, spreads of kind that where on Can Thanks. see there? just understand

Brian Norris

Agency around financing Leverage This XXX we RMBS repo behind the maybe ROEs get with Doug. are low-double-digits XX% of both similar Brian. those classes CMBS XX% similar, to Agency Sure that asset generally is area. in basis is pretty points there. on on

going the XX XX is on to leverage X in range, to So that. be times

Doug Harter

of And points XXX I basis that is back quarter. seen move the strong you've guess guess that I kind the first is factoring in in

So that's kind returns before quarter those of the more probably first I were comparable guess -- move?

Brian Norris

and other. aggressive of adding kind Agency we kind in XXXX, each were CMBS of When those right. top ROEs middle were on more back of That's late

Doug Harter

sort you kind you do of that And the the trade-off hold see that, how I captured strong I how guess just then you've versus see already the given continuing move it guess that you today? attractiveness guess volatility less with mentioned? of of do I to

Brian Norris

it. been hold holdings the in lock to Sure. to we've We'll We've certainly those that NIM able purchased. on continue already

of we dependable provides like portfolio. of the that stream earnings So kind the that steady

better a right to more Agency we it's those bit CMBS valuations little act. bit that add increased see mentioned, now, little but the holdings, a if given little We'd attractive we in RMBS, as certainly So there. is of see a like in a can it bit convexity more risk I Agency balancing bit a

Operator

from Hagen Our Eric next with question is KBW.

is line Your open.

Eric Hagen

morning, Good guys. Thanks.

don't hit pretty Agency the following to and securities in conversation. of high. rates premiums just up on how guys prepayment holistically, prepay is the your and So market I the a value the you but on multi-year that are relative thinking also how come kind already curious, the the increased rates yield a than year market, liquidity -- relative have the mean obviously how mean of think most meaningfully, about you are kind a the Index just have curious do Thank MBA but kind are down just you. current approach longer lot yield the trade-off? you higher of today? I'm lower, of the this where Just you the same of being in of I where kind more more from you risk holistically Just risk agency value do risk RMBS but addressed where those have and term just lower? are standpoint and management they is think Refi DUS liquidity about

Brian Norris

the exactly Eric. of expect forward, well. Yeah, we've yet. credit XX% And next fact, like again. speeds a over right, But matter well refi as meaningfully given the so total RMBS. is right Agency now, at and in Right. really quarter. as pretty assets assets that few diversified moving is to that's hasn't this It we'd where includes speed And be of months. in This We're seen Brian started the slower to far we certainly increase index

So of fairly we perspective, our that relative the manageable of certainly that convexity from that's risk. kind a think rest holdings amount that certainly mitigate to risk of

pretty Agency given RMBS that modestly equity will Agency that we're we number like deployed up comfortable the are I into where right just raise with we RMBS. now. mentioned, So And just trend

Eric Hagen

swaps bit great. right, that rates it Thank the over funding rate basis, And weeks, I few receive that Okay. just relative the All like has you guess on answer. for a the tightened funding repo last of to us then what Can depends of month how receive percentage LIBOR? breakdown the on three month though swaps. swaps give your the just what are -- rate is guys again receive LIBOR as a on versus rate your looks one you

Brian Norris

Sure.

swaps XX% notional. month so far total we've of year As about the of three three that XX/XX, XX% about we of LIBOR. to given were this added has trended month that And LIBOR down

So yeah, we've down. LIBOR come rates seen

what paying between we're in receiving come spread bit. has we're what the So versus little

Eric Hagen

dense, And not Okay. rate LIBOR had of remainder it's be then one month breakdown to like... that the is a just but

Brian Norris

Yeah.

Eric Hagen

Okay, thanks.

Brian Norris

right. Yeah. Exactly,

Eric Hagen

Okay. you much. very Thank

Operator

question next with Securities. Trevor Our is from JMP Cranston

is Your line open.

Trevor Cranston

Hey, thanks.

related mentioned On positive due the of or in occurred book of say of portfolio to more the how was you you related any far if purely to to was And portfolio? about currently if that's guys kind in change just net duration guys and spread that, you rate having value so it the net portfolio you can duration can generally talk tightening? are sensitivity XXXX, that the maybe also managing

Brian Norris

has the say, would Right. yeah, a start Yeah, a terms was quarter. of very I both to in bit first it I of mean had year. Agency good CMBS

to We I So with stable. clearly the a during empirical And we quarter. that. from that tend has duration spreads you've mean Other duration gap our very to spread, non-Agency tended tightened that. the run be -- questioned, also benefited have

relatively stable So of has been our year. book over value last course the the

that are to trying interest you've assets And react to and way one part rates. of balance that going credit got is, to

widen. credit fall, tend rates to interest As assets

run true somewhat to has to that's far And a this -- true was offset that. true model now always year. wise of gap so So and tend we been longer duration

bit we usual duration you longer did So spreads from a benefit having same not at that gap and time. tightening the have little because falling rates a it's

see So benefit and more didn't was Throughout sides both we offset almost all. we that movement of did where value from at was book XXXX, that. much it normal completely

Trevor Cranston

like looks at was looking portfolio drop helpful. the quarter. the significant That's fourth Page cost the deck, particularly funding if of was you it curious you. XX side non-Agency And rates? had book then the guys Got tighter related like seeing of on of more the during Thanks. just notable funding LIBOR on terms a Okay. on lower to or for was non-Agency funds it I spreads if are securities in the so pretty slide there -- of anything the in that

Dave Lyle

of the Lyle. Dave definitely Hey component is is improvement from but Trevor, is further just this credit of was there in a lower the quality most that that Yeah, assets. resulting our LIBOR,

funding, to As to as be as same competitive continue seeing benefits and see to we're repo we our in season, counterparties us rating wanting seeing terms spread with as on they upgrades well. continue side provide repo of we're the very

Operator

At further I'm questions. showing no this time,

John Anzalone

to joining Well, forward for you to right. thank May. us talking All everybody you look we in and

Operator

for time. at you disconnect Thank in may All lines this conference. today's participating

Invesco Mortgage Capital (IVR) 20 Feb 202019 Q4 Earnings call transcript